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Time value for money (TVM) is the concept of worth for money at the present time (now) as
compared to the same at a future date. In this case, an amount of money is worth more the sooner
it is received.
Stock is a unit of ownership.
The return on investment to the shareholders of UPS is 5.73% and 5.34% in 2016 and 2017
respectively. From the dividend yield in the periods, and the increase in yield as a result of
purchasing units of stock in UPS, hence returns.
Bonds (fixed income security) is a debt instrument by companies for the purpose of raising funds
a specific amount of money for a specific period of time and which has a periodic interest
payment obligation at agreed intervals.
In issuance of bonds, the present value of the bond is affected by interest rates in the market.
When the interest rate goes up by 2% the present value of the bond decreases by $17,654
($138,973 - $121,319) whereas, when rates go down the present value of the same goes up by
$21,117 ($160,090 - $138,973).
Stock pricing is another process altogether which is not affected by dividend yielding.
Positive net present value (NPV) figure is okay to warrant acceptance of a capital project. The
internal rate of return which is at 19% refers to the rate of interest that will give an NPV of zero.
Changes in interest rates have an effect on the net present value. The closer the interest rates are
to the internal rate of return (IRR) the more desirable it will be, since break-even point will be
arrived at quicker. Of the three: 5%, 8% and 15%; the most desirable option would be 15%.
Milestone One: Time Value of Money (please fill in YELLOW cells)
FCF - Years
FCF - 2015 FCF - 2016 FCF - 2017
FCF (Free Cash Flows) is the net change in cash generated by the operations of
a business during a reporting period, minus cash outlays for working capital,
capital expenditures, and dividends during the same period. This is a strong
indicator of the ability of an entity to remain in business.
Note: For Milestone One, please use the Free Cash Flows from...